Tax Burdens Lighter in Right to Work States

Early last week, the nonpartisan, Washington, D.C.-based Tax Foundation announced its estimate that “Tax Freedom Day” (TFD) this year would come on April 24.  (See the link below for a related news story.)

The Tax Foundation’s entire published analysis is available at — the group’s web site.

As the Tax Foundation explains, TFD is “the day when the nation as a whole has earned enough money to pay its total tax bill for the year.”

In 2015, “Americans will pay $3.3 trillion in federal taxes and $1.5 trillion in state and local taxes, for a total tax bill of $4.8 trillion, or 31 percent of the nation’s income.”

Not surprisingly, this burden is not borne equally by all Americans, and several factors play a significant role in determining when TFD comes for individual taxpayers and households.

The Tax Foundation highlighted two: “The total tax burden borne by residents of different states varies considerably due to differing state tax policies and because of the progressivity of the federal tax system.”

A couple of days after the Tax Foundation issued its report on TFD 2015, the National Institute for Labor Relations Research calculated average TFD’s for the 25 Right to Work states and the 25 forced-unionism states.

To derive average TFD’s for states where compulsory union dues are either permitted or banned, the Institute took aggregate state personal income data for 2014 as reported by the U.S. Commerce Department and the estimated 2015 TFD’s for the 50 states as reported by the Tax Foundation.

The Institute estimates that this year residents of forced-unionism states will have to fork over 32.9% of their total personal income in taxes, a 5.1% higher share than the national average, and a 12.3% higher share than the Right to Work state average.

TFD in forced-unionism states as a group won’t come until April 30 this year, or six days later than the national average. In contrast, TFD in Right to Work states as a group comes on April 17, or seven days earlier than the national average.

Tax Freedom Day comes significantly earlier in Right to Work states than in forced-unionism states in part because state and local taxes typically consume a smaller share of income in jurisdictions where unionism is voluntary.

Another advantage for Right to Work states is their lower living costs.

As the Institute reported in March, interstate cost-of-living indices calculated by the Missouri Economic Research and Information Center show that on average forced-unionism states were 22% more expensive to live in than Right to Work states in 2014.

When cost of living differences are taken into account, the average disposable income per capita (as well as the average compensation per private-sector employee) in Right to Work states is higher than in forced-unionism states.

However, progressive federal income taxes are levied on nominal, rather than cost of living-adjusted incomes.

Consequently, households in high-cost forced-unionism states like California, New York, and New Jersey and in New England get socked twice.

They have to fork over more for housing, food, energy, health care, and other necessities.

And then they have to pay the same income tax rate as a household in a low-cost Right to Work state like Texas or North Carolina making the same nominal income, even though that nominal income goes much further in the Right to Work states.

The TFD disparity is a prime example of how the forced-unionism system hurts practically everyone, and not just employees and firm owners who are directly affected.

The aggregate Tax Freedom Day for the 25 Right to Work states this year is April 17. That means the average resident of a Right to Work state will spend roughly two weeks less time laboring to pay off his or her total tax burden than the average forced-unionism state resident. Image: Tax Foundation

Tax Freedom Day comes late in 2015 as Americans spend more on